Month: December 2016

Our ancestors lived in fear of famine. A failed harvest caused hardship and rocketing food prices. Two failed harvests was a disaster that could lead to widespread starvation. Today, starvation is mercifully rare. It is much more likely to be caused by war or the deliberate policy of despotic governments than a lack of food. The world produces quite enough for all of us to eat, just as long as we can transport local surpluses to make up for shortfalls elsewhere.

Nonetheless, there may be trouble ahead. It is hard to imagine anything more vulnerable to climate change than food production. Increases in temperature could lead to encroaching deserts, salt water flooding from rising sea levels, and crop-destroying weather wiping out the harvest. Material falls in global food production would be catastrophic if as the population continues to increase. Most dangerously, water shortages would decimate modern irrigation-thirsty agriculture. The question is whether there is evidence that these potential calamities are coming down the road. Of course, we read about many of the alleged effects of climate change in the newspapers. But the media is dominating by bad news, driven by short-term considerations and riven by political agendas. We are woefully short of objective information.

Luckily, for the global food supply, we do possess an unbiased source of data: the United Nations’ world food prices index, which has been running since the early 1960s. Markets, such as the one measured by the world food index, contain a vast amount of information. In the case of the food index, that information includes the total amount that all participants in the global food supply chain know about production in their own areas. That’s far more information than any individual could glean from the newspapers or scientific journals. If one person knows that there is a glut in grain in the Midwest of the US, while another expects a bad harvest in Romania, the market processes that information and adjusts prices accordingly. Crucially, and unlike in the media, good news and bad are afforded equal weight. If we are heading for a world food crunch, the markets will tell us.

Does the food prices index reveal any effects from climate change? In short, no it doesn’t. On the contrary, it shows that, in ‘real’ terms, food still costs roughly what it did fifty years ago. Sure, there have been ups and downs, but the overall trend is flat. Remarkably, over the same period, the world’s population has increased from three billion to over seven billion, while food production has gone up even more as calorific intake per head as increased. Even though 2015 and 2016 were the hottest years on record (thanks in part to the El Nino effect), it is reassuring that this does not appear to be reflected in food prices. In fact, as you can see here, there is a closer correlation to economic circumstances (such as the world financial crisis in 2008/10 and the first oil shock in the mid-1970s) than to climate. In fact, oil prices seem to effect food costs significantly, as we’d expect from the importance of hydrocarbons in the production of fertiliser. So, the half a degree increase in average global temperatures since the 1960s appears to have had no effect on the price of food. Interestingly, one possible driver of increased food prices from climate change is an indirect one: the wrongheaded drive to grow biofuels has driven out food crops like sugar, inflating its price.

The flat trend in the world food prices index doesn’t mean that climate change is having no effect. After all, the media is feeding us a near constant stream of research and anecdotes about the damage that global warming is doing. They can’t all be wrong. However, no one would call the media objective. Any positive effects of climate change are, at best, ignored and more often deliberately buried (see Matt Ridley’s experience on his reporting of global greening here). That’s what makes markets such valuable sources of information. The good news and the bad are given equal weight while actual events are more important than predictions. Of course, markets are not infallible. But because they are made up of vast numbers of individuals whose biases cancel out, they are more objective than any single information source.

For that reason, we should look to markets rather than the media, or even scientists, for the best information about the effects of climate change. For the moment, the evidence for impending disaster isn’t there. Nonetheless, we should keep an eye on the world food prices index for an early warning of trouble ahead.

Last week, the Government published a draft of the legislation intended to implement the Soft Drinks Industry Levy or sugar tax. This was supposed to be the most contentious aspect of this year’s UK Budget. Perhaps the Chancellor of the Exchequer at the time, George Osborne, was hoping it would provide cover for some the other measures that blew up in his face, like forcing all schools to become academies or cutting disability benefits. Osborne is gone now, but the sugar tax lives on.

The tax is supposed to add about 8p to the cost of a can of Coca Cola from April 2018. Many people have been justifiably concerned it will fall disproportionately on the poor. Research on the effectiveness of sugar taxes is mixed but there is some evidence that they might be effective in reducing sugar consumption. The Government is certainly justified to give it a go. Even if we find it doesn’t work, that’s useful to know, as long as politicians are willing to admit to their failure.

From the point of view of designing effective new taxes, the soft drinks industry levy seems sensible. For example, the Government doesn’t want ordinary people to have to pay the tax themselves. Think about the way the income tax and national insurance on our salary are paid via PAYE before we ever get our hands on it. That lessens the pain we feel about losing a large chunk of our wages to HM Treasury each month. The sugar tax works on the same principle. It’s paid by drinks manufacturers rather than by consumers. Of course, the cost will be passed on to the people buying the drinks, but then all taxes are ultimately paid by human beings. The sugar tax will also be a stealth tax. We won’t see it on our shopping receipts or know exactly how much we are paying.

The art of designing a tax is to ensure that it brings as much money as possible with the minimum of political blowback. In other words, it “consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” Nonetheless, the sensible implementation of the sugar tax might be an obstacle if it is supposed to reduce obesity rather than raise revenue. If people are not aware they are paying the tax, they are unlikely to alter their behaviour as a result of it. It might work better if the amount payable was emblazoned on soft drinks’ packaging for all to see.

How can we tell if the sugar tax is working? It is currently expected to raise a bit over £500 million in its first year of operation. If that number goes down, it means sugar consumption is going down too. Ideally, the revenue from the tax would drop to nil as we stop consuming sugary drinks at all. However, as it happens, the Government is only predicting a slight decrease in the revenue raised each year, suggesting that it does not expect the sugar tax to have much effect on our drinking habits.

For the moment, the Government is relying on the manufacturers to cut the sugar in their products. However, if the sugar tax doesn’t cut our intake, the Government might be tempted to increase the rate until it has an effect. It wouldn’t be long until the soft drinks levy brings in £1 billion plus a year and becomes just another revenue raising sin tax like cigarette and alcohol duties. If that happens, the naysayers claiming it is just way to extract cash from the feckless poor would be proved right.